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Wednesday, July 29, 2015

Almost Everyone Is Downgrading Yelp Today

Shares of Yelp IncYELP 27.66%
plunged more than 25 percent after the company reported its second
quarter results that included a full year fiscal 2015 guidance coming in
below expectations.

Oppenheimer: Yelp's Competition To Blame

Jason Helfstein of Oppenheimer commented in a note that Yelp's revised
guidance reflects "difficulty" in hiring new salespeople, sales
productivity, and the discontinuation of brand advertising, all caused
by competition from programmatic ad platforms.
Helfstein added the company's guidance suggests a "reduced salesforce
productivity" from plus 12 percent year-over-year in the first half of
2015 to plus 5 percent in the bottom half. The analyst also noted that
Yelp's plan to spend $10 million a quarter in the bottom half of the
year to drive user engagement adds risks to the company's long-term
margins.
Related Link: Yelp Crashes On Bad Guidance, Downgrades
Bottom line, Helfstein stated that he believes in the underlying value
of Yelp's reviews to consumers. However, until the company can prove
S&M leverage in its results, investors will assume 20 percent
terminal margins, down from a previous 40 percent.
Shares were downgraded to Perform from Outperform with a removed $60 price target.

Morgan Stanley: The Bear Case Is ‘Playing Out'

Brian Nowak of Morgan Stanley commented in a note that Yelp's second
straight quarter of "mis-execution," lower sales hiring and sales
productivity, coupled with the "surprising" elimination of the branded
ad business and rising sources of margin pressure has resulted in a
"more cautious outlook" and evidence that the bear case "playing out."
Nowak said his "more cautious view" is further supported by the simple
fact that "fewer sales people + lower productivity = fewer local ad
dollars." In fact, the analyst's previous bullish thesis was based on
Yelp's ability to continue hiring more local sales people and the
company's target of 30 percent growth in hiring is below his 35 percent
expectations.
Bottom line, Yelp's elimination of its brand advertising will be a
headwind to EBITDA margins while the company's struggles to fill its
salesforce creates a "structural challenge" to its long-term sales force
productivity.
Shares were downgraded to Equal-Weight from Overweight with a price "significantly reduced" to $25 from a previous $53.

JMP: Stepping To The Sidelines Until Trends Improve

Ronald Josey of JMP Securities commented in a note that Yelp's 83
million reviews and 18 million mobile app users are "highly proprietary"
and "not easily replicable." However, the company's decision to exit
its high-margin brand advertising business and slower planned hiring for
its sales force "alters" the company's growth trajectory and
profitability.
Josey continued that investors should move to the sidelines until the
company can show improving trends in overall traffic and engagement as
well as stabilization across its core local advertising business.
Shares were downgraded to Market Perform from Market Outperform with no
assigned price target versus a previous price target of $56 which was
assigned on April 30.

Cantor: Expectations Reset, Opportunity Remains ‘Substantial'

Youssef Squali of Cantor Fitzgerald commented in a note that Yelp's
opportunity in the local online ad market remains "substantial."
The analyst noted that the number of companies with the scale, brand
and network effect to capitalize in the local online ad market is
"limited" and Yelp's positioning makes it a "prime beneficiary" as an
operator and acquisition target.
Commenting on Yelp's decision to eliminate its brand advertising
segment will result in a near-term hit to its top line and
profitability, but the decision could actually enhance user engagement
and the company's value proposition over the medium and long-term.
Shares remain Buy rated with a price target lowered to $50 from a previous $68.
Related Link: Yelp Could Have Been 'Ridiculous,' Disappointed Instead

SunTrust: Risk/Reward Profile ‘More Favorable Here'

Bob Peck of SunTrust Robinson Humphrey commented in a note that perhaps
Yelp's risk-to-reward profile is now "more favorable" with forecasts
being "slashed" which allows a better setup to meet or beat moving
forward.
Peck pointed out that Yelp's Core Local is still a greater than $400
million run-rate business growing greater than 40 percent into "ever
easing comps" while Eat24 is a greater than $35 million run-rate
business growing greater than 70 percent. In addition, the analyst
suggested that short covering could also "lend support."
Share remain Buy rated with a price target raised to $37 from a previous $52.

Elsewhere On The Street

Analysts at Bank of America downgraded shares to Underperform from
Neutral with a price target lowered to $25 from a previous $55.
Analysts at Cowen downgraded shares to Market Perform from Outperform with a price target lowered to $25 from a previous $55.
Analysts at Raymond James downgraded shares to Market Perform from Outperform.
Analysts at Topeka downgraded shares to Hold from Buy.

Tableau Software (DATA) Trading With Heavy Volume Before Market Open

Editor's Note: Any reference to TheStreet Ratings and its underlying
recommendation does not reflect the opinion of TheStreet, Inc. or any of
its contributors including Jim Cramer.
Trade-Ideas LLC identified
Tableau Software (
DATA)
as a pre-market mover with heavy volume candidate. In addition to
specific proprietary factors, Trade-Ideas identified Tableau Software as
such a stock due to the following factors:

DATA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $84.9 million.

DATA traded 262,114 shares today in the pre-market hours as of 9:12 AM, representing 32.7% of its average daily volume.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in DATA with the Ticky from Trade-Ideas. See the FREE profile for DATA NOW at Trade-Ideas
More details on DATA:
Tableau Software, Inc., together with its subsidiaries, provides
business analytics software products in the United States, Canada, and
internationally. DATA has a PE ratio of 3186. Currently there are 18
analysts that rate Tableau Software a buy, no analysts rate it a sell,
and 4 rate it a hold.
The average volume for Tableau Software has been 982,900 shares
per day over the past 30 days. Tableau Software has a market cap of $6.4
billion and is part of the technology sector and computer software
& services industry. The stock has a beta of -0.29 and a short float
of 4.9% with 3.04 days to cover. Shares are up 47.5% year-to-date as of
the close of trading on Monday.
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charitable trust portfolio to see the stocks he thinks could be
potential winners. Click here to see his holdings for 14-days FREE.TheStreetRatings.com Analysis:
TheStreet Quant Ratings rates Tableau Software as a
sell.
The company's weaknesses can be seen in multiple areas, such as its
disappointing return on equity and feeble growth in its earnings per
share.
Highlights from the ratings report include:

The company's current return on equity has slightly decreased from
the same quarter one year prior. This implies a minor weakness in the
organization. Compared to other companies in the Software industry and
the overall market, TABLEAU SOFTWARE INC's return on equity
significantly trails that of both the industry average and the S&P
500.

TABLEAU SOFTWARE INC has experienced a steep decline in earnings
per share in the most recent quarter in comparison to its performance
from the same quarter a year ago. The company has reported a trend of
declining earnings per share over the past year. However, the consensus
estimate suggests that this trend should reverse in the coming year.
During the past fiscal year, TABLEAU SOFTWARE INC reported lower
earnings of $0.04 versus $0.15 in the prior year. This year, the market
expects an improvement in earnings ($0.39 versus $0.04).

The change in net income from the same quarter one year ago has
significantly exceeded that of the Software industry average, but is
less than that of the S&P 500. The net income has significantly
decreased by 78.1% when compared to the same quarter one year ago,
falling from -$5.63 million to -$10.03 million.

The gross profit margin for TABLEAU SOFTWARE INC is currently very
high, coming in at 91.84%. Regardless of DATA's high profit margin, it
has managed to decrease from the same period last year.

Net operating cash flow has significantly increased by 144.33% to
$35.00 million when compared to the same quarter last year. In addition,
TABLEAU SOFTWARE INC has also vastly surpassed the industry average
cash flow growth rate of -29.04%.

Greece Reform Proposals: June vs. July

Greece’s reform proposals
are strikingly similar to the ones Greek voters overwhelmingly rejected
at a referendum only earlier this week. Yet, there are a few
differences, some crucial and others less substantial.

Here is a list of where the two proposals converge and where they still stand apart:

Financing and Debt

Greece
is asking for three-year loans of at least 53.5 billion euros ($59.9
billion) to cover its financing needs between 2015 and 2018. It is also
seeking debt restructuring and reprofiling of its long-term debt due
after 2022. The earlier proposals were in return for a five-month
extension of an existing bailout program for loans of as much 15.5
billion euros and didn’t involve any debt restructuring. Fiscal targets
remain the same with primary budget surplus seen at 1, 2, 3, and 3.5
percent of the gross domestic product between 2015 and 2018, even amid
signs that the economy may have deteriorated under capital controls and
shuttered banks for nearly two weeks.

Tax Reforms

With
few exceptions, the Greek government adopts the creditors’ proposal on
sales and corporate tax rates. The government is seeking to eliminate
sales tax discounts on islands gradually by the end of 2016 instead of
immediately, starting higher-income islands that are popular tourist
destinations. It also seeks to keep hotels under a reduced 13 percent
rate instead of the standard 23 percent.

Pension Reforms

The
government is in agreement with the creditors in eliminating early
retirement benefits and envisages savings of 0.25-0.50 percent of GDP in
2015 and 1 percent of GDP in 2016, effective from July 1, in line with
demands under the earlier proposals. It proposes implementing a
“zero-deficit” clause for supplementary and lump-sum pension funds,
adopted in 2012, from October instead of immediately. While it agrees to
phase out a supplementary allowance for low pensions by the end of
December 2019, it wants to start phasing-out these benefits from March
2016 instead of starting immediately.

Fiscal and Structural Measures

Greece
wants to increase advanced income tax payment on corporate income to
100 percent and gradually for individual businesses by the end of 2017,
as part of steps to close loopholes for tax avoidance. It also proposes
to eliminate preferential tax treatment for farmers by the end end of
2017. The creditors wanted these steps to be implemented by the end of
2016.
The government appears to backtrack on its own earlier
proposals for military spending cuts, offering to reduce spending by 100
million euros in 2015 and 200 million euros in 2016. It had earlier
suggested to cut military spending by 200 million euros in 2016 and 400
million euros in 2017. The creditors have sought an immediate cut in
annual military spending by 400 million euros.
It offers instead
to extend implementation of a luxury tax on recreational vessels in
excess of five meters instead of in excess of 10 meters.

Labor Reform

Government
insists to legislating changes to collective bargaining agreements this
fall; creditors don’t want any changes to already agreed labor
framework and demand that any changes be negotiated with the three
creditor institutions first -- the European Central Bank, the
International Monetary Fund and the EU.

Privatizations

This
is where the government appears to fully adopt the creditors’ demand
for all agreed sales of state assets to proceed, including transferring
the state’s shares in the Hellenic Telecommunication Organization SA to
the asset sales fund and selling regional airports under terms already
agreed with a venture led by Fraport AG, the winning bidder already
selected by the previous government.

After trading tightly range-bound between $58/barrel and
$61/barrel since mid-April, crude oil finally broke down yesterday,
after an EIA Petroleum report showed that crude oil inventories
increased more than expected. The commodity slid 4.2% - its largest
single-day loss since April 8 - to a 9-week low closing price of
$56.92/barrel. The commodity is down 6.6% since recording a peak of
$61/barrel one week ago on Tuesday. Further weighing on prices were
unclear reports of a draft of an Iranian nuclear deal that would relax
sanctions and permit a resumption of exports, as well as continued fears
over Greece's exit from the eurozone. This article will discuss
yesterday's EIA inventory report and use this data to support my
argument that crude oil supply and demand remain just as unbalanced
presently as when oil was trading at $45 per share, justifying my
continued bearish position on the commodity.
In yesterday's
Petroleum Report for the week ending June 26, the EIA announced that
crude oil inventories increased by 2.4 million barrels, versus the
analyst consensus for a 2-million barrel storage withdrawal. The storage
build was also markedly bearish compared to last week's 4.9 million
barrel withdrawal, last year's 3.2 million barrel withdrawal and the
5-year average 4.1 million barrel withdrawal. It was the first storage
injection in 9 weeks since the week ending April 24. Storage injections
during the final week of June are highly unusual, and last week's build
was the first storage injection during the last week of June since the
week ending June 29, 2007, and only the third this millennium.
At
480 million barrels, total crude oil storage is 90 million barrels above
the five-year average inventory level and 80 million barrels above last
year's level, versus a 84 and 75 million barrel surplus last week,
respectively. The increase in crude oil surplus is a sharp departure
from the past two months which had seen surpluses, versus the five-year
average decline in 8 of the past 9 weeks from a peak of over 113 million
barrels. Figure 1 below shows the storage surplus versus the five-year
average and 2014 over the past year.(click to enlarge)Figure 1: Crude oil storage surplus versus 2014 and the 5-year average showing an increase in the surplus after several weeks of decline. [Source: Chart is my own, data from the EIA.]
What happened over the past week that led to such an abrupt change in crude oil supply/demand balance?
Not much, I argue. And that is the problem.
There are three components of US supply/demand balance - domestic production, demand (measured by refinery inputs), and imports.
Domestic
production was largely unchanged last week, declining by 9,000 barrels
per day, from 9.604 million barrels per day the previous week to 9.595
million barrels last week. Domestic production remains at record highs,
despite an oil rig count that has fallen 60% since October. Production
is up 1.2 million barrels year-over-year.
Crude oil demand was
likewise flat week-over-week, declining a negligible 1,000 barrels per
day last week to 16.531 million barrels per day. Demand is up 313,000
barrels per day year-over-year. Note that this is well shy of the 1.2
million barrel per day year-over-year increase in production. As a
result, the purely domestic supply/demand picture - demand minus US
production - is markedly loose compared to last year. Figure 2 below
compares the purely domestic supply/demand picture for 2015 versus 2014.(click to enlarge)Figure 2: Purely
domestic crude oil supply/demand balance equal to demand minus domestic
production. Supply/demand remains loose to 2014 and has been flat over
the past 2 months, indicating minimal tightening of the market. [Source: Chart is my own, data from the EIA.]
Note
that last year at this time, demand exceeded domestic production by 7.8
million barrels per day, while last week, this spread was just 6.9
million barrels. Further, despite all of the hullabaloo over record
demand and declining domestic production, this spread is sitting near
the 2015-to-date average of 6.6 million barrels, and has been
essentially flat since late April.
It is the third component of
the US supply/demand picture - imports - that drove last week's bearish
storage build and had been masking the persistent supply/demand mismatch
shown above in Figure 2 that allowed crude oil to rally more than 30%
off the March lows. Imports increased by 748,000 barrels per day last
week to 7.513 million barrels per day. It was the largest week-over-week
increase since the week ending April 3rd and the largest daily average
since the week of April 17th. Nevertheless, the 7.5 million barrel per
day tally was a mere 170,000 barrels per day above the 1-year average
import level. Figure 3 below plots crude oil imports versus the 1-year
average over the last 12 months.(click to enlarge)Figure 3: Crude oil imports versus the 1-year average. After 2 months well below the 1-year average, crude oil demand rebounded last week. [Source: Chart is my own, data from the EIA.]
Note
that after hovering in the 6.75-7.25 million barrel per day range since
late April, last week's imports were merely a return to the baseline.
Furthermore, imports have room to go even higher. Figure 4 below shows
the week-over-week change and the departure from 2015-to-date average
imports by country.(click to enlarge)Figure 4: Crude
oil imports by nation with week-over-week and departure versus the 2015
average included. While imports from Canada rebounded last week, large
deficits versus the 2015 average remain in Canada, Saudi Arabia, and
Mexico. [Source: Chart is my own, data from the EIA.]
Note
that the second-largest weekly increase in imports last week came from
our biggest oil trading partner, Canada, where imports increased by
142,000 barrels per day. However, thanks to persistent wildfires in
Alberta's prolific oil sands, imports are still 187,000 barrels per day
below their 2015 average. As these wildfires have largely diminished, I
expect Canadian imports will continue to increase, from 2.8 million
barrels per day last week back to their 3.0 million barrel per day 2015
average in coming weeks. An even more impressive departure versus the
2015 average was seen in Saudi Arabia, where imports remained flat at
700,000 barrels per day last week, more than 250,000 barrels below their
2015 average of 992,000 barrels per day. Saudi Arabia is a country
whose rig count is at record highs and which is spearheading the effort
to destroy the US shale oil industry, so I expect these imports will
recover rapidly over the next month. Finally, our third-largest trading
partner, Mexico, saw its imports slide 290,000 barrels per day last
week, and currently sit 215,000 barrels per day below its 2015 average -
likely another short-term anomaly. Were just these three countries to
have had their imports at 2015 baseline levels, last week's storage
build would have been a massive 7.1 million barrels. The gains seen in
Venezuela, Kuwait, and other smaller trading partners that sent tallies
above their 2015 averages may be at least partially attributable to a
surge in Gulf Coast imports following delays caused by Tropical Storm
Bill, and therefore, may decline in coming weeks. However, I expect the
net change in imports to be upwards over the next month, putting further
pressure on the supply/demand balance.
My rationale for
emphasizing imports compared to US production and demand is that I
believe that they have been artificially creating the appearance of a
tightening supply/demand balance. Thanks to wildfires in Canada,
Tropical Storm Bill interrupting shipments in the Gulf of Mexico, and
unrest in the Middle East, imports during April, May, and early June (as
shown in Figure 3) were depressed below the five-year average. This
correlated strongly with a transition to storage withdrawals that helped
to fuel the back-end of crude oil's 30% rally from the March low of
$43/barrel to $61/barrel. Figure 5 below compares crude oil weekly
storage injections/withdrawals to imports.(click to enlarge)Figure 5: Crude
oil storage changes versus imports. There is a strong correlation
between storage withdrawals between May and late June and a decline in
imports. Storage injections resumed last week, following a surge in
imports. This supports imports being the major driver of the domestic
supply/demand balance over the past few months. [Source: Chart is my own, data from the EIA.]
During
this same period (as shown in Figure 2), domestic production and demand
remained relatively unchanged. As a result, I firmly believe that the
decline in imports hoodwinked many investors into thinking that the
supply/demand balance was permanently tightening, due either to
increasing demand from cheap oil or declining production from the
declining rig count, when it was really a temporary drop in imports. Now
that imports have returned to a baseline level, this "masking" of the
supply/demand balance has been lifted, and the result was a bearish
injection similar to those seen during oil's springtime free fall - but
during a time when the market expects withdrawals. It is therefore
unsurprising that oil retreated to the tune of 4% yesterday.
What I
believe to be even more concerning is that there is little room to go
higher on the demand front. Refinery utilization - the percentage of US
refinery capacity that is being utilized to convert crude oil to
gasoline and other finished products - was at 95.0% last week. This is
the highest refinery utilization during the final week of June over the
last 10 years. Figure 6 below shows refinery utilization for the last
week of June from 2006 to the present.(click to enlarge)Figure 6: Refinery
utilization during the final week of June for the past 10 years showing
that, at 95%, 2015's utilization is the highest of the decade. [Source: Chart is my own, data from the EIA.]
Furthermore,
the maximum refinery utilization during any week in the last 10 years
was 95.4%, recorded several times, most recently last December. As a
result, at 95.0% refinery, utilization is nearly at its maximum
capacity. The fact that we saw a 2.4 million barrel storage injection,
with demand near its maximal level pulling hard at crude oil inventories
and with imports still with room to run higher, suggests to me that oil
still has room to fall.
Oil's 4% decline to under $57/barrel
represented a major breakdown not only from a fundamental level, as
discussed above, but from a technical level. During the 44-day period
from April 29 to June 30, crude oil had traded within a tight $4.17
range between $61.43/barrel and $57.26/barrel, the narrowest range since
March 2004. Oil broke out of that range yesterday. Figure 7 plots the
price of crude oil over the last 3 months, showing the rally,
range-bound action, and the breakdown yesterday.(click to enlarge)Figure 7: Crude
oil prices over the last 2 months showing range-bound trading largely
between $58/barrel and $61/barrel. followed by a breakdown yesterday. [Source: Chart is my own, data from the EIA.]
Now that oil has fallen below its 2-month support level, I would not be surprised if more investors head for the exits.
I
continue to hold three positions betting on a continued downtrend in
crude oil prices. I own a 10% short position in the popular United
States Oil ETF (NYSEARCA:USO) - increased from 5% last week - a large 15% short position in the leveraged VelocityShares 3x Long Crude Oil ETN (NYSEARCA:UWTI), and a 5% short position in the Market Vectors Russia ETF (NYSEARCA:RSX).
The latter provides short exposure to an oil-driven economy, as well as
the turmoil encompassing Europe. The short UWTI position is a
higher-risk play on leverage-induced decay due to choppy trading. USO,
of course, is a safer direct play on declining oil prices.
Should
oil drop to $55/barrel - which has long been my short-term price target -
I will begin to aggressively cover my UWTI short position to protect
profits in a highly volatile trade, which is currently up 20% and would
likely be pushing 35% if oil reaches $55/barrel. I will likewise plan to
close out my RSX short around the same level to lock in profits, should
the European crisis appear to be resolving.
However, I plan to
hold USO for the foreseeable future. Following yesterday's decline,
contango in the oil futures market is again rising, with the 4-month
spread up to $1.21, or 2.2%, after bottoming out at $0.86 last week.
Should oil continue to fall, the contango will likely widen further, and
I could easily see contango-generated returns topping 5% on a position
held through the Fall. I feel USO is a safer, less volatile long-term
hold than UWTI (despite the fact that UWTI triples the
contango-generated gains and also benefits from leverage-induced decay).
My price target to close out my USO position is currently $50/barrel.
Factors that would likely cause me to cover sooner would include any
socioeconomic forces that look like they would suppress imports for an
extended period, or if US production (finally) begins declining in a
meaningful way. As a result, my "stop" is a fundamental stop, and I do
not have a specific stop price. Should oil rally in the face of the
current bearish fundamentals, I will even consider adding to my USO
short position up to 15%. If I had no crude oil short exposure, I would
be reluctant to open a position here with oil down 7% in a week. Rather,
I would wait for a bounce before initiating any position.
In
conclusion, I believe that US crude oil demand and production remain in a
stable, bearish pattern. Instead, the fundamental supply/demand picture
is, and has been, dictated by fluctuations in crude oil imports. I do
not believe that the underlying fundamental picture has changed since
March, and that a return to baseline import levels last week following
months of temporary suppression unmasked this persistent supply/demand
imbalance. With crude oil demand unlikely to go higher with refineries
near peak capacity, domestic production stable, and crude oil imports
with room to go even higher, particularly from Canada and Saudi Arabia, I
expect continued weakness in crude oil in the months to come. Once the
summer driving season fades and demand declines, I would not be
surprised to see the domestic oil surplus climb back above 100 million
barrels over the next 1-3 months. Further exacerbating bearish sentiment
are the possible resumption of Iranian exports and continued anxiety
over Greece and the eurozone, although I believe these fears to be
secondary to the ongoing domestic storage glut. My 1-3 month price
target is $55/barrel, with a potential to drop as low as $50/barrel
during this time. As a result, I plan to hold my large basket of crude
oil short positions in USO, UWTI, and RSX.Additional disclosure: As noted in the article, I am also short RSX and UWTI.

We are in the climax of Greece’s debt crisis. It has been a
slow-burn crisis, a five-year-long string of high-drama confrontations
amid tedious talks. These next three weeks are crucial. The endgame is
July 20, when Greece must repay a bond to the European Central Bank.Barring a last-minute U-turn by
Greek Prime Minister Alexis Tsipras to accept the economic policies
that Greece’s creditors are demanding as the condition of further
bailout loans, here is how that endgame would look.

What happens today, June 30?

The bailout program officially expires and a payment of €1.55 billion ($1.73 billion) to the IMF falls due.

Does that matter?

Barring a magical rabbit springing from a hat, Greece will miss the IMF payment. The IMF will be mad,
but the missed payment has few practical consequences. The eurozone
bailout fund has the option of declaring Greece’s rescue loans in
default and demanding accelerated repayment, but that would be a nuclear
option it likely wouldn’t exercise—at least not right away. The bailout
fund is controlled by eurozone finance ministers.

What about the bailout program expiry?

How so?

Greek banks have relied for months on emergency lending from
the central bank. They have scant cash and few assets they can quickly
sell, so when a depositor asks for a withdrawal, they must borrow from
the central bank to be able to give the depositor cash.
Greeks have made €35 billion in withdrawals this year through May,
the most recent available data. Non-Greek banks have pulled nearly
another €30 billion of loans. The Greek banks have less than €2 billion
in cash.
On Sunday, the ECB froze the emergency lifeline at around €89
billion. Unable to get more cash to give to depositors, banks shut
Monday. To reopen the banks, that lifeline needs to be turned back on.

Will it?

It is difficult to imagine the ECB increasing the lifeline
without the Greek government and the European creditors agreeing to a
deal.
The ECB is right now taking a middle course. Since banks need more
money every day to cope with withdrawals, freezing the lifeline shuts
the banks but doesn’t kill them. The lifeline comes in the form of loans
to the banks that are regularly renewed; in effect, the ECB is saying
you can’t have any more loans but we’ll keep renewing the ones you have.
The tougher course would be to end the lifeline entirely and demand that the loans be repaid when they come due.

Why might the lifeline end?

The lifeline, called Emergency Liquidity Assistance, or ELA, is highly flexible. The rules
say that the banks receiving it must be “solvent,” but otherwise the
ECB has broad latitude. The ECB also doesn’t lend for free—it has
required the Greek banks to post assets as collateral to get ELA.
So two things could kill the lifeline: Insolvency of the banks, or a
determination that the collateral they are posting isn’t adequate. Let’s
take them one at a time.
By the books, the Greek banks are solvent. They have assets,
primarily in the form of loans, that exceed their liabilities, primarily
deposits and central-bank lending.
That, of course, could change—perhaps many of their loans need to be
written off or reduced in value. Perhaps the deferred tax assets
(basically, promises that they’ll get tax refunds or credits in the
future from the Greek government) they hold aren’t worth as much as they
imagined.
The banks don’t have heavy holdings of Greek government debt: €13.8
billion out of a total assets of nearly €400 billion—even if that debt
went to zero the banks would probably remain solvent.
Collateral is another matter. The ELA is secured by a hodgepodge of
collateral: some of the banks’ loans, some covered bonds, a little bit
of government debt. For the four big banks, though, a special kind of
government-guaranteed bond makes up a large chunk of the collateral.
That means to keep ELA going, the ECB must primarily assess whether
the government’s guarantee is solid enough to make the collateral
adequate. It’s a judgment call.

So would bailout expiry end the lifeline?

Probably not, especially when there is a referendum scheduled
in five days. The ECB is loath to be seen as interfering in politics.
The formal end of the bailout program doesn’t directly affect the banks’
solvency. Some on the ECB’s board might argue that it hurts the
government’s guarantee and thus the adequacy of the special bonds. But
the ECB could credibly keep the lifeline frozen at least through the
referendum.

What happens if ELA is ended outright?

The banks collapse as soon as the ELA loans come due. The banks
cannot repay them. So the collateral they posted would be seized. They
posted more than a euro in collateral for each euro in lending, and thus
they collapse.

When would the famous “Grexit” come?

Right around then. It could be as soon as July 21, if the loans
granted under ELA are overnight loans (the exact maturity isn’t known).
If the banks have collapsed and there is no central-bank support, the
government would have to create a new currency to restart the financial system and make payments.

Can it be avoided?

Yes, but time is excruciatingly short. The referendum is July
5. If there is a “Yes” vote, Mr. Tsipras has hinted he would resign. A
new government would need to be formed, a deal signed, legislation
passed and money disbursed from the creditors in time to make the July
20 payment.
If there is a “No” vote, Mr. Tsipras would presumably try to
negotiate a better deal on the back of the popular support. And again, a
deal would have to be reached, legislation passed and money disbursed
by July 20.

Could the ECB forestall Grexit at the last minute?

If it wanted to be really, really, really nice it could come up
with a way to overlook a missed July 20 payment. Perhaps it could
invoke a grace period. And Standard & Poor’s, the rating firm, has
said a default on the ECB-held bonds would not be enough to place the
Greek government in default. (S&P says its ratings reflect a
borrower’s repayment of commercial creditors only.) Perhaps that’s
enough cover for the ECB to say the government’s guarantee is still
good.
But these are Hail Mary passes highly likely to be swatted down by the ECB’s board.